Allianz Global Investors GMBH & Ors v Barclays Bank PLC & Ors

The Court of Appeal allowed the appellants' appeal and struck out the defendants' pleaded allegation that investment funds' losses were avoided or passed on by reason of redemptions at a reduced net asset value. The court held that the central question is whether the fund itself had avoided or mitigated its loss by paying out a lower sum on redemption, not whether redeeming investors acquire a separate cause of action. The court rejected the contention that redemption converts a fund's reflective loss into an actionable loss for the redeeming investor and held, applying the principles in Swynson, that any benefit to the fund from lower redemption payments is collateral (res inter alios acta) and therefore does not reduce recoverable loss as a matter of law.

The court considered the interaction between pass-on/avoided loss, the reflective loss rule (Prudential/Marex/Primeo), and the law governing trusts and partnerships, and concluded that domestic law does not require giving redeeming shareholders, beneficiaries or partners a direct remedy under Article 101. The appellant's strike-out application therefore succeeded.

This appeal concerned claims brought by a large number of investment funds (the Funds) against several banks for damages arising from alleged anti-competitive manipulation of foreign exchange markets between 2003 and 2013. The Banks pleaded that the Funds' losses were avoided or passed on to investors who redeemed at lower net asset values (the "Redemption Argument"), which, if sustainable, would require extensive disclosure of redemption events going back to 2003.

Procedural posture: The appeal was from Sir Nigel Teare's order refusing to strike out the Banks' defence that the Funds had avoided or passed on losses; the High Court decision is reported at [2021] EWHC 399 (Comm).

Issues framed:

• Whether a redeeming investor (shareholder, beneficiary or partner) acquires a cause of action on redemption for diminution in the redemption proceeds such that the fund's loss is avoided or passed on;
• Whether principles of trust, company (reflective loss) and partnership law prevent a redeeming investor from suing for such diminution;
• Whether any benefit to the fund from lower redemption payments is a collateral benefit (res inter alios acta) and therefore does not reduce recoverable damages;
• Whether EU law (Article 101 TFEU and the principle of effectiveness) required domestic law to give redeeming investors a direct remedy, particularly after the end of the UK implementation period.

Court's reasoning (concise):

• The court identified that the critical legal question is whether the Funds' losses were avoided by lower redemption payments, not whether redeeming investors have title to sue; the High Court had concentrated on title to sue, which diverted attention from the central avoided-loss question.
• The court applied established mitigation and collateral-benefit principles, principally as articulated in Swynson and British Westinghouse, and concluded that redemptions arise from contractual constitutional arrangements (trust deeds, articles, partnership deeds) pre-dating the alleged wrongs and are independent transactions. Consequently any benefit to the fund from lower redemption payments is collateral and does not operate to reduce the fund's recoverable loss as a matter of law.
• The court held that the reflective loss rule (Prudential, as explained in Marex and considered in Primeo) applies to diminution in value and distributions; the court rejected the contention that redemption converts reflective loss into an actionable loss for the redeemer, and rejected arguments that Article 101 or effectiveness required a different domestic-rule outcome.
• Policy considerations (practical burdens of proof, disclosure and risk of defendants escaping liability) reinforced the conclusion that the Banks' pleaded avoided-loss defence should be struck out.

Relief sought and disposition: The Funds sought to strike out the Banks' avoided/pass-on defence; the Court of Appeal allowed the appeal and ordered that the Banks' allegation that losses were avoided or passed on by redemption be struck out.

Appeal allowed. The Court of Appeal concluded that the High Court had focussed on title to sue (reflective loss / trust / partnership issues) rather than the central question whether a fund's loss is in fact avoided by redemptions. On the correct analysis, redemptions and any resulting benefit to the fund are collateral (res inter alios acta) as a matter of law and do not reduce the fund's recoverable loss; redeeming investors do not obtain a separate actionable loss on redemption which escapes the reflective-loss or trust/partnership rules; and EU effectiveness did not require a different outcome after IP Completion Day. Accordingly the Banks' plea of avoided loss was struck out.

Appeal from the Commercial Court (Sir Nigel Teare) [2021] EWHC 399 (Comm); hearing in the Court of Appeal resulting in judgment [2022] EWCA Civ 353.